http://www.gulfkeystone.com/ The firms exploration programme in Algeria is going well and "the shares look good value", say the Investors Chronicle. Your comments please. goal.

nice one cyril!!!:))

dalesman - 26 Feb'12 -

Just to underline the enormity of the under valuation by Cannacord this week I have posted a screenshot on my website dalesmann.com of one of the lesser used but nevertheless useful workbooks contained in ‘Targeting Oil Shares’. Click to enlarge.

This workbook is a simple one and takes all its references from other integrated spreadsheets.
In its most simple form it asks how many recoverable barrels would it take to support the current share price.

At a share price of £3.64 the spreadsheet returns a figure of 667m barrels
This is valuing a barrel of oil at $7. 64 a figure slightly below TPOs $7.80 . His spreadsheet can still be accessed at:
http://dalesmann.com/tpo-revised-gkp-valuation/

I understand it is currently undergoing a slight upwards revision but it will do for now.
This represents a PSC profit of 13% before tax (corresponding to TPO’s 7.8% profit after the 40% AISP tax, in the above calculation a $100 long term oil assumption has been assumed.)

The Cannacord so called valuation ignores their own previous calculations. In BBBS recent valuation

http://dalesmann.com/bbbs-gkp-nav-updated-cheap-at-half-price/

he sites Cannacord using a similar figure to TPO – based on

“- a Discount Rate Reduction Factor (DRRF) of 0.6185 (corresponding to the reduction observed within the Cannacord Adams evaluation of several generic Kurdistan PSC’s when applying a Discount Rate of 10%),”

I strongly suggest you read the whole of BBBS post to gain the full context of this statement.

Suffice to say if BBBS is correct (I’m sure he is) then Cannacord have up till now been using a very similar figure to TPOs £7.80 for a recovered barrel. :0)

They qualify their statement by saying that their calculations are based on 3b bls recoverable. I’m happy to use this figure, which they state was derived after a 28% recovery factor was applied,

GKP has effectively 54% of this figure. After a 10% top-slice has been applied we come to 1.439bbls as the GKP entitlement.

Their current valuation of GKP they say comes out at £1.70. Does it really – then your previous guidance was worthless !

So we are led to believe that 1.439bbls = £1.70/ share – lets assume 893m(fully diluted) shares in issue

And an exchange rate of $1.57 = £1

We then have 1.57 x 1.70 x 893 = market cap of $2.383b according to Cannacord

If we now divide this number by the number of barrels they have assigned to GKP we get 2.383 / 1.439 = $1.65/ recoverable barrel.

Are they actually trying to make us believe this figure – about what Afren paid for contingent resources, not recoverable barrels! Genel paid $5.8/ bl and stated that the Chinese were prepared to pay 33% more ($8.7 / barrel)

Compare that figure with Cannacord’s own declared announcement for a barrel of recovered oil derived from a KRG PSC contract and all of a sudden there is a $6 / barrel disparity.
If we use figures stated by Cannacord Adams in their previous analysis (see BBBS post) a figure close to TPOs $7.80 ,

we get

$7.80 x 1.439 = $11.22billion

Divide that by 893 shares in issue 11.22/0.893 = $12.56/share

Divide this figure by the exchange rate 12.56/$1.57 = £8.00

So using previously stated metrics put out by Cannacord Adams themselves their valuation should be £8.00

They then have applied upside due to a TO situation which amounts to £2.10 – £1.70 = 40p/share or a percentage premium of 23% (strange I’ve heard that figure before haven’t I CJ?)
If we apply a 23% uplift to £8.00 we get £9.84

I think that these figures have now some semblance of truth to them. :0)

I have only used figures put out by Cannacord Adams themselves prior to their last note, their recovery factor , their recovered barrels. All based it seems on the 10.5billion OIP figs at Shaikan which both Todd and John G expect to update us on soon. John has mentioned 18b OIP, Todd a doubling of the resources.

Interestingly if we take Cannacords 28% recovery factor and apply it to 10.5b we get 2.940bl leaving only 60mbo to come from Sheikh Adi, Ber Bahr and Akri Bijeel. As 2.4b has already been declared at Akri Bijeel and we have a fully diluted 77.41m barrels of entitlement there, it appears that Cannacord is throwing in around 17m barrels at Akri Bijeel for FREE as well as the whole of Sheikh Adi and the whole of Ber Bahr – IMHO there is absolutely NOTHING in their figures for these blocks! Am I wrong?

Returning to my workbook and the associated screenshot:

You can see that only 637m barrels are required to support the current market price using $7.64 profit /barrel

If we return to Cannacord Adams entitlement figures assigned to GKP of 1439m, the Shaikan valuation would be $11b or equivalent to £7.00 for Shaikan alone before any TO premium.
In actual fact my own figures as can be seen from the screenshot have an unrisked target of £14.32

A little bit of study looking at the spreadsheet will see how this figure was derived.

So much for what IMHO was a most disingenuous note!

As always I urge you to DYOR . Check out the validity of my workings for yourself – as always I am not giving any advice on holding, selling or buying – that is all down to you!

What we will get in a TO situation is anyones guess - a low ball offer is still possible.

A second longish post 'A Pilot on board' is also posted on my site

Kind regards
Dalesmann

Scotland on Sunday's excellent Bill Jameison today writes this, the article as a whole is very close to the Telegraph one, but I will concentrate only on two features - QE and Energing market Growth.

Bill writes ( page 22 Business) from HSBC's research paper "oil and money"
"QE is now playing a role in pushing up oil prices higher as well as by turbo-charging emerging market growth.
- a slowdown in the big G7 , no longer works to bring down the oil price as it once did.
- Emerging Markets now account for nearly half of all world oil consumption"
Yet, more QE is likely to be the reaction to the fall in productivity that higher oil prices bring.
- returning to GKP, and our UK mid cap oil cos, no wonder there is now a rush to take them out. This sub-sector is getting re-rated, and may well be further so. As a slight aside, I'd be buying into copper for example, also boosted by the same factors. QE is boosting commodity prices and more QE will boost them more .
No advice intended of course.
H
H.

perhaps coincidence, but sp dropped back to 338 this morning, which happens to be 25 dma level, and then bounced modestly

A bit of an attack on the SP this am,probably after those stops? 340p seems to interest buyers,i would think some news is required to recerse this trend? To be in or not is an issue with GKP as a offer could appear out of the blue and as i see that figure way above todays price,then my decision is to hold on however painful short term.

Is it me or i'm the only one geting trouble ,loggong in?

No, it's been like that most of Monday.

Same problem for me sometimes, takes about 10 times before it finally logs in.

After a bad start perking up again, back to 350+.,.

Just surfaced,glad to see the log in problems sorted,along with a reasonable recovery 357p.

cyril it's 9.45am you having brunch????

Post Monday night and a very expensive one looking at the charts.I was waiting for sub 340p to buy more "doh".

Huge jump and in auction now.,. 370+

with heart in mouth, i bought a few more this morning at 333.75 ..... THOUGHT about more but didn't haver the balls ..... anyway, whoosh-whoosh but it may just be a bear squeeze as order books look balanced and no news

Clever boy.....fully loaded for myself .....for now.,.

so was i, and that was before this morning's top up!

lol, cyril, you need to ignore what maybe keeping you in bed........ very costly at times ;)

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I've all i need just looking to t trade at these prices.

Wonder if pro, will spout forth and say he bought back in on the low.......

This post i've copied sums up my thoughts.

Not falling for all this negativity... Look at the trading going on for the last month or so, look at the press article, the message to pi's from tk, the move into Kurdistan by Exxon and total, the sh4 testing results to come, the bb drill extension (dry my arse...why drill more if it's been dry two thirds of the way down?), the ab sale, the appointment of the best sales brokers in the world, the awarding of 15 mill shares to ak (hold them until take out darling, you'll get your 100m plus a 100%), the closing down of Algeria, the grh maps, cj and his contacts, noble trader and his ear to the ground, the recent broker reports (too transparent), the noise about Kurdistan going it alone (greAt), a judge who dismissed the court case as opportunistic, the last great oil rush, the dwindling of super giants....and...

Gkp, just chilling, holding onto all that news that it has, just knowing, that they have a friggin rediculous amount of oil and that they could phone any bank manager or institution up at any time on any day and raise half a billion just like that.....and produce the fucker themselves if they want....

I give it a month to be through £5....